You are currently managing a factory. Identify the product that is being manufactured by your business.
The product that our business manufacture is Birken which is the slipper. Slippers are usually casual shoes wear at home or for casual wear with comfortable and stylish. The trade in slippers attracted great sponsorship and it is estimated that the annual sales will reach billions of dollars. The most basic footwear is produced in large quantity and varies in size and colour is rubber slippers. In our business, we produced different types of slipper in the market with branding Birken such as sandals, open- heel slippers, ruby slippers and others.
Explain the concept of production. Explain the concept of cost (in general) that is associated to the product.
The basic idea of the production philosophy is that customers will choose a wide range of low-cost product and services (Bhasin, 2017). As a result, our business focus on making as many units of slipper as possible. So, our company aim to maximize profitability by leveraging the economies of scale and by concentrating on producing the largest number of slippers. One of the strategies that our company used is intensive distribution strategy to achieve high volume and low cost. The intensive distribution mainly refers to large-scale distribution and display products as much as possible by using all available outlets so that resellers can sell in large quantities due to large-scale distribution (Bhasin, 2018). Besides that, the benefit of intensive distribution strategy is revenue generation, product visibility and impulse sending. For example, as more locations display or sell our product – slippers, the more opportunities there are for manufacturers to make a profit.
The concept of cost is used in this form. In the manufacture of goods and services, the cost refers to the sum of the value of raw materials, labour, and expenses incurred in producing of a given quantity. In order to manufacture slippers, there are many types of cost to go through. Accounting for costs in manufacturing companies included manufacturing cost and non- manufacturing cost. We separate manufacturing cost into three board categories: direct material, direct labour and manufacturing overhead.
Manufacturing Cost
Manufacturing Cost is also known as product cost as it included all costs involved in making a product. First, the direct material is the raw material that becomes an integral part of the product and that can trace directly to it. For example, the rubber sheet is one of the direct material to produce the slipper. Second, direct labour is the labour cost that can be easily traced to an individual unit of a product like salary paid to the worker who works in the factory. Third, manufacturing overhead cost included all manufacturing cost except direct material and direct labour. It can be classified into three categories which are indirect material, indirect labour and manufacturing overhead. Indirect materials are materials that are not easy to identify and connect with a particular product like silicone is an indirect material to produce a slipper. Indirect labour such as factory supervisors and product inspectors. Then, manufacturing overhead also known as indirect expenses like rental of factory building, insurance of factory and utilities used in production.
Non-manufacturing cost
Non-manufacturing costs also called period cost as it included all selling cost and administrative cost. The business usually divided the non-manufacturing cost into two categories which are selling cost and administrative costs. The cost of sales includes all the costs to ensure the customer’s order and deliver the finished product to the customer. For instance, the cost of shipping, sales travel, sales commission and cost of finished good warehouses. In addition, administrative costs are related to the management and administration of the office or company. Examples of administrative costs are included salary of office manager, clerks and other employees, salary of administrative directors, office printing and cost of stationary.
Fixed Cost
The cost that remains unchanged within a certain period of time and in the range of activity although fluctuations in production. Fixed cost per unit varies with the production quantity. For example, the production of slipper increase, the fixed cost per slipper decrease. On the other hand, the fixed cost per slipper increase when the production of slipper decrease. There are some example of fixed cost like rental of a factory, insurance of factory, depreciation on plant and machinery, salary of employees.
Variable cost
A variable cost is a cost that varies in total, in direct proportion to changes in the level of activity. The activity can be present in many ways like units of production, units sold and hours work. Direct material is a very good example to explain the variable cost. For example, the rubber sheet is the main material to produce a slipper. Assume that the cost of rubber sheet is $1 and the units of production is 1000 units. Thus, the total of variable cost is $1000 ($1 x 1000 units). In other words, the production of the slipper increase, the total variable cost will also increase.